Microsoft to customers: buy premium editions

As Microsoft ups its sales forecasts for the two years after Vista's release, …

That's the sense we're getting from Redmond, where Microsoft is already gearing up for a splashy Vista launch experience that will hearken back to the glory days of Windows "Start Me Up" 95. The hype machine is designed to get people excited, get them lined up outside Best Buy at midnight, and most importantly, get them buying. How can a company create this much mass excitement for what is, in the end, a computer operating system? Dave Block, a Vista product manager, told attendees at this year's Intel Developer Forum that he has the answer.

"Can we get a cool new PC in front of Oprah?" Block asked. "Can we do stuff like that? I think we can."

Microsoft must be feeling confident, because its launch predictions have been growing steadily. Back in February, we reported that the company hopes to ship 200 million copies of Vista in the first two years after launch. That number has apparently doubled already, as Block said last month that Microsoft wants to see Vista on more than 400 million machines in two years. And not only that, but the company wants at least half of those sales to be for premium editions of the OS.

Why the push for premium? Money. Goldman Sachs now calculates that Microsoft could earn an extra US$1.5 billion a year from premium licenses. Rather than raise the price of basic Vista versions, Microsoft hopes to entice businesses and consumers to pay a little bit more for the added features of the premium products. To that end, the most desirable new features will be reserved for these premium editions. For home users, that means no integrated DVD burning or Media Center functionality unless they purchase the Vista Home Premium edition. For business users, it means no BitLocker or Virtual PC support unless they go with Vista Enterprise.

Rather than the current large price price gap between XP Home and XP Pro, Microsoft will probably position its Vista editions closer in price, making the premium editions look more compelling. Whether Microsoft can convince more than half of its potential customers to pay more for additional features remains to be seen, but Goldman is optimistic; they believe that almost three-quarters of home users will opt for a premium version.

It's a different story for business users, who cannot get the premium edition (Vista Enterprise) without signing up for a volume licensing agreement (Software Assurance or a Microsoft Enterprise Agreement). This leaves small businesses, especially, stuck with Vista Business or paying a premium to buy Vista Ultimate, which will contain many of the consumer features that businesses may not need. Of course, business users won't be the ones lining up at midnight; since corporate deployments of new operating systems are notoriously conservative, much of the sales volume in the first year or two will be driven by consumer demand.

Pricing for the different Vista versions has not yet been set, so the effect on Microsoft's bottom line (and the customer's wallet) is not yet certain, but the company wants to make it easy to spend your money: OS upgrades can now be delivered on the fly. If Microsoft can come even close to its sales targets for Vista, however, it stands to make far more money than it did with the Windows 95 launch, which sold only 67 million copies in the 24 months after its release.